SuRo Capital Corp (SSSS) 2023 Q1 法說會逐字稿

Good day, and welcome to the SuRo Capital First Quarter 2023 Earnings Call. Today's conference is being recorded.

I will now hand you over to your host, Willy Lee, to begin today's conference. Thank you.

Thank you for joining us on today's call. I'm joined today by Chairman and Chief Executive Officer of SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green.

Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events & Presentations.

Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital, and unauthorized reproduction of this call in any form is strictly prohibited.

I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including but not limited to those described from time to time in the company's filings with the SEC. Management does not undertake to update such forward-looking statements unless required to do so.

To obtain copies of SuRo Capital's latest SEC filings, visit our website at www.surocap.com or the SEC's website at sec.gov.

Now I would like to turn the call over to Mark Klein.

Thank you, Willy. Good afternoon, and thank you for joining us. We would like to share the results of SuRo Capital's first quarter 2023.

The first quarter of 2023 saw continued volatility in the public equity markets as a result of continued inflation coupled with decelerating GDP and extended stress in the banking sector. Recently, however, the NASDAQ Composite Index and the technology stocks in particular appear to have shown signs of stabilization.

Despite the volatility, the IPO markets have shown cautious signs of near-term opening. For example, last week, Johnson & Johnson's consumer health spin-off, Kenvue, debuted in the public markets, raising $3.8 billion. According to Bloomberg, this is [the biggest] U.S. listing since 2021.

Additionally, according to the information, in the wake of its failed SPAC merger, leading online ticket platform SeatGeek filed confidentially for an IPO last month. Further, according to The Wall Street Journal, marketing automation company Klaviyo hired bankers in April for an upcoming IPO with sources saying the listing could take place as early as September.

Finally, according to Bloomberg, British computing firm Arm filed for a U.S. IPO with plans to raise between $8 billion and $10 billion. The [listing of Arm is] one of the largest U.S. IPOs of the last decade.

These listings and headlines demonstrate cautious optimism for a rebound in the latter half of 2023.

We are also seeing positive trends emerge in the private secondary markets. In its April 2023 private markets update, Forge reported that the median bid-ask spread on new indications of interest compressed in March, down from the platform's all-time high in Q3 of 2022.

Consistent with prior quarters, Forge has also reported that in the first quarter, secondary transactions will close at an approximately 50% discount to the company's last primary financing. While still relatively expensive compared to public comparables, this discount, coupled with increasing secondary trade volumes, may indicate that the market is finding a level where investors will transact.

Given these conditions, we continue to see numerous opportunities in the private markets. In fact, in 2023 to date, we evaluated more [potential opportunities] than any other prior period. However, given public and private valuations are still converging, we have been cautious about deploying capital.

With over $120 million of investable capital at quarter end, we remain poised to continue investing in both primary and secondary opportunities for later-stage high-growth companies at what we believe will be compelling valuations. Current market conditions present us with opportunities to explore prospects as late-stage businesses seek to go public soon after market conditions improve. We believe we will see increasingly promising opportunities to deploy capital this year as pricing in the private and public markets gradually converge.

We ended the first quarter with a net asset value of $215 million or $7.59 per share. This NAV per share [compares to] net asset value of $7.39 per share at year-end and $12.22 a share in Q1 of 2022.

Allison will discuss our first quarter results, including investment activity during the quarter and the results of our modified Dutch auction tender offer that we began during the quarter and executed subsequent to quarter end.

Please turn to Slide 4. Turning to our top 5 positions, I first want to highlight our cash position. As of quarter end, our cash and short-term U.S. treasury balance totaled over $124 million, representing 43% of our growth assets. As we have previously discussed, we believe having cash in this environment advantageously positions us to continue to seek out new opportunities emerging from current market conditions.

SuRo Capital's top 5 positions as of March 31 were Learneo, Colombier Sponsor, Blink Health, Locus Robotics and Architect Capital PayJoy SPV. These positions accounted for approximately 59% of the investment portfolio at fair value. Further, as of March 31, our top 10 positions accounted for approximately 78% of the investment portfolio at fair value.

As you may recall, in December 2022, Course Hero announced its rebranding to Learneo in order to better reflect the company's evolution from a [simple] business model to a robust platform of education technology companies. According to PitchBook, Learneo has raised approximately $500 million, most recently, the December 2021 $380 million fundraise specifically targeted to fuel an acquisition strategy to broaden and diversify from the original course Hero business and create a major leader in the edtech space.

For example, among Learneo's 6 recent acquisitions is QuillBot, an artificial intelligence-powered writing platform that paraphrases, summarize, grammar-checks and reviews large sums of text. According to a press release at the time of the acquisition in August 2021, QuillBot had 7 million active monthly users. Since the acquisition, QuillBot has shown tremendous growth, surpassing 30 million monthly active users in March of 2023.

Additionally, in the same month, QuillBot reached its highest web traffic to date of approximately 78.5 million website visits, as reported on SimilarWeb. According to SimilarWeb, this is nearly equal to Grammarly's approximately 79.8 million visits during the same month.

Another Learneo's acquisition was Symbolab, an AI-powered math solver business that helps students solve complex math problems. [Accounts] by Learneo in October 2021, the time of the acquisition, Symbolab had already been used by over 50 million students to work through 1 billion questions and explanations in 2020 alone. According to SimilarWeb, Symbolab had approximately 21 million website visits in March of 2023.

On April 5, Learneo announced its most recent acquisition, LanguageTool. German-based LanguageTool is a multilingual grammar style and spellchecker powered by AI. The acquisition bolsters Learneo's AI-driven writing tools and supports Learneo's international expansion given LanguageTool's broad reach of B2C and B2B customers around the world.

Learneo's acquisitions of QuillBot, Symbolab, LanguageTool, LitCharts, Scribbr and CliffsNotes has successfully created a robust and diversified platform of education technology companies that we believe position the company well for the rise of AI in the edtech universe.

In addition to their successful acquisition strategy, Learneo has remained profitable on a cash basis since TechCrunch originally reported on its profitability in 2020. As of March 31, 2023, Learneo had more cash on its balance sheet than it did when it completed its last fundraise.

In fiscal year 2022, Learneo was considered to be a rule of 40 company, a term used to describe companies whose sum of revenue rate and adjusted EBITDA margin exceed 40%.

Given Learneo's progress and path forward, we believe Learneo is well positioned to continue to make accretive acquisitions, thus cementing the company as a major player in the AI-based edtech universe.

Despite significant slowdowns in SPAC transactions, we are pleased to share the following recent update on one of our SPAC investments. On April 7, Colombier Acquisition Corp. completed their S-4 filing in connection with the proposed merger with PublicSq., an e-commerce marketplace. If the merger between Colombier Acquisition and PublicSq. is completed, SuRo Capital's position in the new company should be worth more than $20 million.

Transitioning to our public investments. As previously stated, it is our objective to sell our public positions when lockup restrictions expire and there is relative stability given public positions' trading. In line with this approach, we continued to monetize several of our public unrestricted positions over the course of the quarter. During the first quarter, we fully exited our positions in Kahoot! and Rent the Runway and reduced our holdings in NewLake Capital Partners.

Finally, I would like to reiterate SuRo's commitment to initiatives that enhance shareholder value. Given the discount our stock is traded at compared to net asset value per share, we believe our recent modified Dutch auction tender offer was an efficient and accretive deployment of capital. Allison will discuss the results of the tender offer in her prepared remarks.

Thank you for your attention. And with that, I'd like to hand it over to Allison Green, our Chief Financial Officer.

Thank you, Mark. I would like to follow Mark's update with a more detailed review of our first quarter investment activity and financial results as of March 31, including the results of our modified Dutch auction tender offer executed subsequent to quarter end and our current liquidity position.

First, I will review our investment activity not including investments in short-term U.S. treasuries. During the first quarter, we made a $2 million follow-on investment in the Series 1 senior preferred shares of Orchard Technologies, Inc. Additionally, the remaining $1.3 million unfunded commitment to True Global Ventures 4 Plus was funded via net distribution capital call.

Over the course of the first quarter, we sold our remaining public common shares of Rent the Runway and Kahoot! and continued to monetize our public common shares in NewLake Capital Partners.

In addition to sales of our unrestricted publicly traded investments, during the first quarter, we received approximately $300,000 in proceeds from Second Avenue related to principal repayments on the 15% term loan due December 2023 as well as other investment, dividend and interest income. Subsequent to quarter end, we continued to receive proceeds from Second Avenue related to the principal repayment and interest on the 15% term loan due December 2023 as well as other investment, dividends and interest income.

Please turn to Slide 5. Segmented by 6 general investment themes, the top allocation of our investment portfolio at quarter end was to education technology, representing approximately 38% of the investment portfolio at fair value. Financial technology and services was the second largest category, representing approximately 30% of the portfolio. The marketplaces category accounted for approximately 15% of our investment portfolio. And approximately 9% of our portfolio was invested in cloud and big data companies. Social and mobile accounted for approximately 8% of the fair value of our portfolio. And sustainability accounted for less than 1% of the fair value of our portfolio as of March 31.

As mentioned earlier by Mark, SuRo Capital is committed to initiatives that enhance shareholder value. Accordingly, on March 17, 2023, our Board of Directors approved a modified Dutch auction tender offer or the tender offer, which commenced on March 21, 2023, to purchase up to 3 million shares of our common stock at a price per share not less than $3 per share and not greater than $4.50 per share using available cash. The tender offer expired on April 17, 2023.

Pursuant to the terms of the tender offer, on April 21, 2023, we repurchased 3 million shares at a price of $4.50 per share, representing 10.6% of outstanding shares. The per share purchase price of properly tendered shares represented 60.9% of net asset value per share as of December 31, 2022.

The company [uses available cash] to fund the purchase of its shares of common stock in the tender offer and to pay for all related fees and expenses. Because the tender offer was executed subsequent to quarter end, it is not reflected in our financial statements for the 3 months ended March 31, 2023.

The purchase price of $4.50 per share represents a 39.1% discount to the December 31, 2022, NAV per share and a 40.7% discount to the March 31, 2023, NAV per share. Accretion on NAV per share based on these same metrics is in excess of $0.30 per share.

Please turn to Slide 6. We are pleased to report we ended the first quarter 2023 with an NAV per share of $7.59, which is consistent with our financial reporting. The increase in NAV per share from $7.39 at year-end to $7.59 as of March 31 was primarily driven by a $0.31 per share increase resulting from the unrealized depreciation of our portfolio investments during the quarter. Also contributing to the increase was a $0.01 per share increase related to realized gains on investments and a $0.03 per share increase related to the impact of stock-based compensation. The increase in NAV per share was partially offset by a $0.15 per share decrease due to net investment loss.

Finally, I would like to take a moment to review SuRo Capital's liquidity position as of March 31. We ended the quarter with approximately $135.6 million of liquid assets, including approximately $48.1 million in cash, $76 million in short-term U.S. treasuries and approximately $11.5 million in unrestricted public securities. Given the recent volatility in the banking sector, we continue to hyperfocus on the location of our cash balances to ensure our cash balances will not be in danger or inaccessible.

At March 31, 2023, there were 28,338,580 shares of the company's common stock outstanding. Presently, following the execution of the tender offer subsequent to quarter end, there are 25,338,580 shares of the company's common stock outstanding.

That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator to start the Q&A session. Operator?

(Operator Instructions) We have our first question from Kevin Fultz from JMP Securities.

My first question relates to Learneo. You've seen the headlines around the impact that AI and ChatGPT is having on [particularly] online education space. Some publicly traded education platforms are down more than 60% year-to-date.

Mark, I was curious if you could share your thoughts on the impact that AI is having on Learneo's business model, if they're experiencing the same degree of disruption that other education platforms are facing. I'm just trying to get a better understanding around how you're evaluating your investment and what the outlook is for the company.

Thanks, Kevin. Appreciate it. And as you can tell, we focus a lot of our prepared remarks around Learneo to address that issue head-on. So what I would say is that Learneo's management has been at the forefront of understanding the need to diversify their business model, and they raised a bunch of money in the end of December of 2021 to do that.

As we discussed in the prepared remarks, several of their investments are with AI-based tools as part of them and have experienced significant growth of their business. They do have the Course Hero base business, which is similar to Chegg. And they have been discussing how to utilize AI in connection with all of their tools in Course Hero to address that and be successful with it as well.

We have our second question from Jon Hickman from Ladenburg Thalmann.

So you made the comment, Mark, that you looked at or reviewed more opportunities in the

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months than in any other period. Is that what you said?

Yes. Well, it's about 5 months, but sure. We...

Okay. 5 months.

Yes. So Jon, it's -- there is an awful lot that is going on specifically in the secondary markets as early investors or employees or ex-employees are looking to monetize their holdings because they don't know when the IPO market is opening. So we are getting a lot of opportunities in that area. We are seeing some smaller primary rounds that are being done as well.

And as we said also in our prepared remarks, although we are seeing a lot, there still is a bit of a dislocation between where the public company comparable companies are trading versus where the secondary prices of these private companies are. But we are looking at a lot, we are evaluating a lot, and we continue to move forward on that.

So are these organized secondaries, like the companies or they've hired like bankers or whatever...

No. For a large part -- no, some are organized secondaries. Some are company tender offers. Some are sourced either through our network or through brokers or through exchanges.

There are no further questions. So I will hand the call over to Mr. Mark Klein to conclude today's conference.

Thank you all very much for taking the time this afternoon to participate in our earnings call. As always, we management are available to have further conversations. Thank you.